How do the new 1099 regulations differ from the current regulations?
Reporting on Form 1099 applies generally to certain financial transactions (loan transactions, interest, dividends, etc.), targeted transactions (e.g., prizes, bartering), and amounts paid to unincorporated businesses (independent contractors) for services. Payments to tax-exempt organizations are exempt from reporting. (Under the new law, they should remain exempt.) The new provisions will require businesses to track all payments made directly or through their employees.
What is the reason for these changes?
The new rules are aimed at reducing the tax gap—the difference between the amount of tax revenue the government receives from taxpayers verses the amount that under the IRS law taxpayers are supposed to pay. This gap is estimated to be $300 billion a year.
Why do these changes involve private-independent schools?
Even though most private-independent schools are non-profit institutions (i.e., they don’t pay income taxes), schools will need to comply with the 1099 regulations as it appears now. Simply put, it’s not schools the IRS is worried about—it’s the vendors that we pay that they’re interested in. Or so it seems.
Best advice right now
Our best advice is to stay in close contact with your accountant/auditor—as well as your financial software provider. They will be keeping up-to-date on the new 1099 regulations and can best advise what needs to be done with your system/reporting process. While the new law is a big change from current 1099 requirements, advanced planning can mitigate much of the burden the new regulations may place on small businesses and schools.
